Chapter 27 - The Government's Use of Monetary Policy

228. What are Federal Reserve Banks? Why was the Federal Reserve System created?

Federal Reserve Banks are banks that are under Federal Jurisdiction. The system was created so that the United States would have 1 form of Currency inside its borders.

225. Reserve requirement - (Chapter 27 - pgs. 287-291)

ratio of money that must be kept by law in a bank and cannot be loaned out to consumers

230 Describe how the FED uses each of these tools to regulate the supply of money and Credit. -Adjusting the Reserve Requirement -Adjusting the discount rate -Use of the Open Market Committee

--Adjusting the Reserve Requirement allows for banks to have money in savings in case something would happen --Discount rate changes would result in better money supply -- Open Market Committee allows for the government to use resources that are not politically motivated.

229. What is monetary policy? What monetary policy steps can the Federal Reserve take during recession times? What monetary policy steps can the Federal Reserve take during Inflation Times?

--Government's Ability to control the nation's money supply to promote economic growth and stability. --More Money into Circulation; Lend more money; --Reduce the money supply; interest rates can be changed

231. Describe how each of the following present a limitation to the use of monetary policy. -The Independence of the FED -The lack of response to interest rates -Effect on the strength of the US Dollar

--The Independence of the FED presents the limitation of being outside the Gov't they have less power. --Lower interest rates result in more money but also cause no additional money to be made by the banks --The strength of the US $ is limited to the uses of it.

223. Monetary policy - (Chapter 27 - pgs. 287-291)

Government policy that attempts to manage the economy by controlling the money supply and thus interest rates.

227. Open Market Committee - (Chapter 27 - pgs. 287-291)

Responsible for formulating the Fed's monetary policies to promote economic stability and growth. Includes the Board, the president of the NY Reserve Bank and the presidents of four other Reserve Banks

226. Discount rate - (Chapter 27 - pgs. 287-291)

The interest rate on the loans that the Fed makes to banks

222. Federal Reserve Act - (Chapter 27 - pgs. 287-291)

This act established the Federal System, which established 12 distinct reserve to be controlled by the banks in each district; in addition, a Federal Reserve board was established to regulate the entire structure; improved public confidence in the banking system.

224. Federal Reserve Banks - (Chapter 27 - pgs. 287-291)

the 12 banks chartered by the U.S. government to control the money supply and perform other functions